Running a small business comes with many challenges. Small business owners need to monitor every area of their business to ensure everything runs smoothly and the business grows. Meeting expenses is a huge proponent of owning a small business, and one crucial aspect of that is money management. You need to have money on hand to pay expenses on time, so you can establish trust with vendors, avoid delays in inventory deliveries and keep up with rental payments.
Here are 10 practical ways any small business owner can start saving money in their business operations.
To have enough money on hand to cover expenses, you need to ensure that your business is profitable, and finding ways to save money is a key factor in turning a profit. Every area of your business where you can reduce costs is money that can be reinvested into the growth and success of the company. Here are 10 money-saving tips for small business owners.
1. Keep a Budget
Having a budget gives you insights into your business and helps you identify areas you can improve to reduce costs. The first step is to keep track of all expenses and revenue with a thorough budget. While it may feel like a hassle, budgeting is a crucial aspect of business management. When creating and reviewing a budget, business owners can identify areas for improvement, and savings opportunities become immediately apparent after tracking a budget for a few months. For example, an owner can see unnecessary costs, such as having too many employees working on particularly slow days. After identifying this issue, the owner can rearrange the schedule so employment costs go down without impacting operations.
A budget can also help business owners track their profit margins on products or services. For example, a quick budget review can help owners identify low-profit margins on all orders that are a direct result of free shipping. This allows them to make strategic, data-backed decisions about the business, such as limiting free shipping to orders that meet a minimum spend.
2. Take Advantage of Tax Deductions and Exemptions
Almost every city and state has systems in place to support small businesses. Entrepreneurship is a vital part of the economy, and individuals who open small businesses are given tax deductions and exemptions as a form of assistance. The government understands that small businesses often struggle financially for the first few years of operation, so these tax breaks are meant to help.
However, these deductions and exemptions aren’t automatically applied to your business’ tax filings. As a small business owner, you’ll need to identify what you qualify for and include it in your tax filings. Some of the most popular tax exemptions and deductions that small business owners may be eligible for include:
Deductions may include:
- A home office
- Start-up costs
- Organizational costs
- Employee benefits
- Charitable donations
- Moving expenses
- Janitorial services
It’s often recommended that small business owners hire a professional accountant to file their taxes for them. Your accountant will know and understand the exemptions and deductions that apply to your business.
Hiring an accountant also ensures your taxes are filed correctly. If a business files its taxes incorrectly it can be penalized with fees or interest, which could be a financial shock to many small business owners.
3. Outsource Tasks to Contractors
When a small business is just starting out, hiring an entire team of full-time workers can be expensive. Owners can reduce their costs by outsourcing some tasks to contractors. Freelance help is often more affordable and doesn’t come with taxes, insurance and costly employee benefits.
Identify the areas where you can benefit from part-time expert help, and find a freelancer for those tasks. Popular business areas to outsource include advertising and social media, IT, accounting and bookkeeping and data entry.With sites like Upwork and Fiverr, you can always find help within your budget.
4. Eliminate, Reduce or Share Your Retail or Office Space
The traditional business operation includes getting office or retail space to run the business out of. However, every small business owner should stop and ask themselves if that’s really necessary. Can your business run out of a coworking space or a home office instead of leasing space? If not, can the company downsize its current space for something smaller? A reduction in space can save you thousands of dollars in rent every year.
5. Keep Overhead Costs Manageable
Many small owners are excited to start operations and make the mistake of investing in too much too quickly. This includes purchasing too much equipment, buying the latest technology and renting large, fancy spaces. If the business takes a little while to pick up, many owners wind up having to sell a lot of these items at a loss.
It’s great to have ideas and plans, but it’s best to save them for when cash is abundant. Make a list of your needs versus your wants, and then, purchase everything you need to launch the business. After that, prioritize your wants from first to last, and buy them one at a time as profits come in. A slow and steady approach can save you money and reduce risk.
6. Track Inventory Levels
Most businesses require inventory of all types to run their operations. Inventory could be the products you sell or the items you need for day-to-day operations.
It’s essential to have a robust inventory management system from the very beginning. Otherwise, the following issues may occur:
- Too much inventory is ordered, and it expires on the shelves.
- Too much inventory is ordered, and the business owner doesn’t have enough cash flow to handle other expenses.
- Too little inventory is ordered, and customers are told items are out of stock, which is a loss of potential sales.
- Inventory isn’t properly monitored, and a lot goes missing due to loss or theft.
- Too much inventory is ordered of an unpopular item, and it ends up having to be sold at a nonprofitable price.
Inventory costs money, and small business owners need to find the balance of having the right amount on hand at all times. Investing in an inventory management system, or tracking your inventory levels yourself, can help you prevent costly inventory mistakes.
7. Negotiate With Vendors
Small business owners should always try to negotiate with vendors. A vendor wants and needs your business, so it’s a good idea to remind them that you have other options. You can try to negotiate for:
- Lower pricing, if you place a larger order
- Discounts for every repeat order
- Discounts for being flexible on shipment deliveries
- A discount, if you lock into a multi-month or annual contract
There’s no need to be shy about negotiating with vendors. Negotiation is standard in all areas of business, and your vendors likely expect you to start a negotiation. Do your research beforehand so you know the standard prices and the price you want to pay.
8. Run Lower Cost Advertising and Always Track Results
Advertising is an integral part of your small business, but it can often be expensive. If you’re looking to save money, opt for lower-cost advertising in the beginning. Instead of running radio advertisements or online paid ads, consider social media, SEO and email marketing. These marketing tactics are free or very cheap and can have a significant impact on driving customers to your business.
As you explore new marketing avenues, always keep track of results. Different business models will see different success rates for each type of advertising. Give each promotional attempt approximately three months to run before evaluating results. After that period, do an ROI analysis to determine whether it was successful. If it was, consider doubling down on this type of advertising, and if it wasn’t, it’s time to try something new.
9. Split Costs With Other Small Businesses
There are so many creative ways you can work with fellow small business owners to reduce costs and increase brand awareness. Other small business owners in your area may be going through the same challenges as you, which likely means they’d love to find ways to reduce their costs as well. Find ways you can partner with these businesses that can be cost-efficient for both of you. Some ideas for the partnership include:
- Running featured spotlights on each other’s social media profiles to get exposure to new audiences
- Agreeing to cross-sell your products at each other’s locations
- Creating a co-branded product that you both sell
- Signing up for local events and sharing a booth
- Booking a pop-up together
- Sharing a retail or office space together
10. Get a Small Business Loan
Most small business owners can qualify for a small business loans if they can show a good credit score, adequate annual revenue and an updated business plan. Getting a small business loan at the right time can help you excel in your business and save money in the long run.
Let’s say your business is growing, demand is high and you have ideas for expansion. If you don’t have the money at the moment to expand, that shouldn’t necessarily stop you. A small business owner who feels confident that a loan can get them to the next stage and help them bring in more revenue should take the leap. Getting a small business loan is a lot better than putting everything on a credit card, as these loans typically have lower interest rates.
Get Your Small Business Loan Today With Lenzi
Lenzi’s entire mission is to help small businesses thrive by making the process of acquiring capital as straightforward as possible. To date, Lenzi has helped entrepreneurs across the country receive more than $500 million in loans. A loan from Lenzi can help your business save money, so you can expand without relying on high-interest credit cards. Fill out a loan application today to get started.